Highlights of
Report Number:2007-30-058 to the
Internal Revenue Service Commissioner for
the Small Business/Self-Employed Division.

IMPACT ON TAXPAYERS

The Centralized Offer
in Compromise sites in Brookhaven, New York, and Memphis,
Tennessee, evaluate offers for
“simpler” cases (e.g., wage earners), while more complex offers (e.g., business
and self-employed taxpayers) are forwarded to field offer groups where they are
evaluated by experienced revenue officers in the Collection Field function.Recently, the Internal Revenue Service (IRS) successfully
integrated offers submitted by certain self-employed taxpayers into the mix of
cases evaluated by the centralized sites.This change provides taxpayers with quicker responses to their proposed
offers and assisted the IRS in reducing the number of revenue officers
dedicated to the offer program.

WHY TIGTA DID THE AUDIT

This audit was
initiated at the request of the Commissioner, Small Business/Self-Employed
Division, for us to evaluate the ability of the centralized sites to accurately
and timely work offers from self-employed taxpayers.The overall objective of this review was to
determine whether the centralized sites properly resolve offers from taxpayers
who file a U.S. Individual Income Tax Return (Form 1040) Profit or Loss From
Business (Schedule C) and evaluate the related impact on the field offer
groups.

The centralized sites were implemented in August 2001.At that time, the IRS intended for the sites to
work offers submitted by self-employed taxpayers, but, because of a large
inventory, it determined these types of offers should be worked by the field
offer groups.However, since Fiscal Year 2003,
offer receipts have been declining, and the IRS has identified simpler field
offer cases that could be worked at the centralized sites.

WHAT TIGTA FOUND

The IRS provided
effective oversight to ensure the successful implementation of the
self-employed Schedule C units at the centralized sites.Our evaluation of samples of closed cases
determined the centralized sites accurately and timely processed these offer
types.

This process change
and other changes over the past several years have resulted in taxpayers
receiving quicker responses to their proposed offers.The number of cases in the field offer groups
taking more than 12 months to close decreased from approximately 36 percent
in Fiscal Year 2002 to about 14 percent in Fiscal Year 2006. In addition, the centralized offer concept has
assisted in reducing the number of employees dedicated to the offer program.A 54 percent decrease in offers received between
Fiscal Years 2003 and 2006 and improved efficiencies allowed the IRS to reduce
the number of revenue officers from 1,078 in April 2001 to 143 in October 2006
and the number of technical employees in the centralized sites from 616 in
August 2002 to 360 in January 2007.The
935 revenue officers formerly dedicated to the offer program retired or
returned to the Collection Field function.In addition, revenue officers in the field also retired or resigned
during this period, resulting in an increase of 275 revenue officers assigned
to the field.This growth was
significant because the Collection Field function increased collections by 34
percent, from approximately $2.7 billion in Fiscal Year 2001 to $3.6 billion in
Fiscal Year 2006.While other
factors certainly influenced the increase in collections, such an increase
would not have occurred if the staff resources had been retained in the offer program.

WHAT TIGTA RECOMMENDED

TIGTA
made no recommendations in this report. However, key IRS management officials
reviewed it prior to issuance and agreed with the facts and conclusions
presented.